J.C. Penney Company Inc. (JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently reported sales results for the five-week period ended October 1, 2011. The company’s comparable-store sales for September inched down 0.6% compared with an increase of 5.1% for the same month last year.
Total sales also fell 3.6% to $1,426 million from $1,480 million in September last year.
Failing to impress with its performance, management now projects loss in the range of 12 cents to 7 cents per share, including restructuring charges of approximately 22 cents a share.
Earlier, management forecasted third-quarter 2011 earnings between 15 cents and 20 cents a share, including restructuring charges of about 5 cents.
However, excluding restructuring charges, the company expects earnings in the range of 10 cents to 15 cents per share.
The company also trimmed its comparable store sales guidance. The company now expects third quarter 2011 comparable store sales to remain flat compared to the year ago quarter. Earlier, J. C. Penney expected comparable store sales to increase in the range of 2% to 3%.
During the period under review, The Plano, Texas-based J. C. Penney registered comparable-store sales growth across women's accompaniments and children’s apparel, with the southeast region recording maximum sales.
The company’s comparable-store sales for the thirty five-week period crept up 1.6%. However, total sales inched down 1.3% to $10,649 million.
The in-store Sephora departments continue to attract younger and more affluent customers. These are part of J. C. Penney's strategy to gain competitive advantage over drug stores, which gave their cosmetic sections facelifts in the recent years. The Sephora concept instigates confidence and is expected to be a significant revenue driver.
Thus, the company announced the extension of the in-store Sephora and Call it Spring by the ALDO Group, with total number of locations reaching to 308 and 505, respectively.
J.C. Penney’s well diversified supplier base, compelling private and national brands, marketing campaigns, point-of-sale technology initiatives as well as effective cost and inventory management should bode well for sales and margin trends over the long term. The company also remains on track to deliver comparable-store sales growth and boost its market share.
However, the global credit markets have recently undergone significant disruption creating difficulties for the companies to obtain financing on reasonable terms. This could considerably increase cost of borrowings, diminish the ability to obtain additional financing or refinance the existing long-term obligations, and may also deter J.C. Penney’s expansion plans.
Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company’s growth and profitability.
J.C. Penney, which competes with Macy’s Inc. (M) and Kohl’s Corporation (KSS), currently operates more than 1,100 department stores in the United States and Puerto Rico.
We reiterate our long term Neutral recommendation on the stock.
Currently, J.C. Penney holds a Zacks #4 Rank, which implies a short-term ‘Sell’ rating (for the next 1–3 months).
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